Quantitative Credit-Rating Models Including ESG Factors

Summary We constructed a discriminant function that includes an ESG factor. It has a higher explanatory power in discriminating between industrial companies’ good and poor credit qualities than similar models that don’t include an ESG factor. While empirical credit quality research has focused on “classic” credit ratios in the past, we find that adding at least one ESG factor improves …

Green Bonds: The Shape of Green Fixed-Income Investing to Come

Fixed-income securities that use their proceeds toward the financing of ESG-aligned projects have proven particularly attractive among investors. Their volume has been increasing exponentially since their inception by the European Investment Bank (EIB) in 2007 and following their expansion by the International Finance Corporation (IFC) in 2010.

For this special issue, we looked for articles that explore the extent to which sustainability-linked and ESG-aligned fixed-income securities can support the mainstreaming of responsible investment principles across the financial sector.

What’s in a Greenium: An Analysis of Pricing Methodologies and Discourse in the Green Bond Market

Whether green bonds deliver a cheaper cost of capital to issuers than vanilla bonds has been a contentious issue since the start of the green bond market. Among green bond market participants, perspectives on a greenium rest on market positions. On the issuer side, green bond issuers claim to be beyond, and others claim to be at par. As the market has developed, commentary on the investment side has changed. Some investors are arguing that they are investing in green bonds at par with vanilla bonds, while others say that they give financial preference to green bonds.

Defining Climate-Aligned Investment: An Analysis of Sustainable Finance Taxonomy Development

The global transition toward a low-carbon and climate-resilient economy requires common, science-based frameworks against which governments, the private sector, and individuals can determine whether activities contribute meaningfully to that transition. Developing a standardized language for determining what activities contribute to climate change mitigation and adaptation is a primary focus of international policymaking efforts to meet the Paris Agreement targets.